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    CARES Act Includes Qualified Improvement Property Fix

    As part of the December 2017 Tax Cuts and Jobs Act, Congress created a framework to accelerate depreciation for businesses on qualified improvement property (QIP), which generally is any improvement made to the interior portion of a nonresidential building any time subsequent to a building being placed in service.

    The depreciable life of QIP was to be reduced from 39 to 15 years and with 100% bonus depreciation being available for all assets with a life of 20 years or less. This would mean if you spent a million dollars in 2018 renovating interiors you should have been entitled to an immediate million dollar tax deduction.

    Although that would have been great news, you know what happens -. In the final version, Congress forgot to specify QIP as 15 year life property. As a result, the life remained 39 years, and thus the property was not eligible for 100% bonus depreciation.

    The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act was the opportunity to repair things and provides a much-needed technical correction to the QIP problem, granting the intended 15 year life language while making the change retroactive to January 1, 2018. Thus, for anyone interested, you are entitled to file an amended return to reap the benefits of accelerated depreciation in 2018 and save when you file 2019.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

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    Net Operating Losses: The Carryback is Back!

    The 2017 Tax Cuts and Jobs Act (TCJA) updated the net operating loss rules to eliminate carryback opportunities, while allowing carryforwards to be used to offset 80% of taxable income. On the plus side, the updated rules allowed losses to be deferred indefinitely removing the 20 year expiration rule and even better than that, is the good news that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has modified those rules even further and now the 80% limitation has been lifted, meaning once again losses can now be carried back for up to five years.

    The widening of the use of net operating losses and allowing carryback refunds as part of implementing the CARES Act presents an opportunity for small businesses to recoup taxes paid, as well as significantly reduce their tax burdens going forward. The IRS also announced temporary procedures that allow a fax transmission of the required forms to speed up the processing times for these refund claims. The new law requires a taxpayer with a net operating loss arising in a 2018, 2019, or 2020 taxable year to carry that loss back to each of the five preceding years unless the taxpayer elects to waive or reduce the carryback.

    Starting on April 17, 2020 and until further notice the IRS will accept eligible refund claims forms to a specific fax number – 844-249-6236 for Form 1139 (corporations) and 844-249-6237 for Form 1045 (individuals, estates and trusts). The IRS is encouraging taxpayers to wait until April 17, rather than mailing in the forms since mail processing is being impacted by the pandemic.

    Previously, these forms could be filed only via hard copy delivered through the USPS or by a private delivery service. The temporary procedure to accept these forms via fax allows the federal government to make the relief in the CARES Act available to taxpayers before IRS processing centers are able to reopen. The other procedures to process claims will remain the same – the only difference is to allow an additional method to file eligible refund claims.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

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    What the CARES Act Means for RMD’s

    When it comes to required minimum retirement account distributions (RMDs), the government giveth, and now giveth again.

    Earlier in the year, due to congressional approval of the Secure Act created for older Americans, the RMDs from retirement accounts are underwent a bit of a makeover. The updated life expectancy tables, which were proposed by the IRS for 2021, adjusted how you calculate those RMDs and there are two main benefits to consider.

    After 2019 the mandated annual withdrawals from your retirement accounts will begin once you reach  72, as opposed to the former 70 and a half years of age. While that age delay is a small thing, it is still helpful to those wishing to maintain account balances and defer taxes.

    The second benefit of the updated longer life expectancy calculations is that they work to make the minimum amount you have to take a little smaller. While it is true that most account holders take more than required, the IRS estimates that just 20.5% of those age 70 and older are expected to take only the minimum in 2021.  Now the government has come along to bring further financial relief to those minimum minded retirees by waiving all required minimum distributions due in 2020.

    Normally, there is a consequence if you do not take any distributions, or if the distributions are not large enough, but the Coronavirus Aid, Relief and Economic Security (CARES) Act changes this for 2020. By not taking a RMD, you can reduce your 2020 tax bill.

    Anyone with an RMD due in 2020 from a company plan, such as a 401(k), 403(b), IRA, or other defined contribution plan, is eligible.  Unfortunately, if you already took an RMD for 2020, you may be out of luck because there are generally no give backs.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

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    Quick Guide: CARES Act Payroll Tax Deferral

    News of the Coronavirus Aid, Relief, and Economic Security (CARES) Act has made headlines every day since its enactment in late March. As of April 16, the Small Business Administration (SBA) announced that the initial amounts appropriated for the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) (including up to $10,000 emergency grants) for the COVID-19 virus situation have run out, but fear not for businesses concerned about cash flow can find solace in two other CARES Act provisions.

    One provision of the Act allows the employer portion of payroll tax deposits to be utilized if no PPP loan is forgiven. This provision seeks to alleviate the burden on employers struggling to make payroll by allowing the employer’s share of the 6.2% social security tax that would otherwise be due from the date of enactment through December 31, 2020, to be deferred and then paid in two 50% installments by December 31, 2021 and December 31, 2022. For those who are self-employed, you can immediately defer paying 50% of your self-employment tax that would be due from the date of enactment through the end of 2020 until the end of 2021 (25%) and 2022 (25%).

    This means an employer who incurs its 6.2% share of Social Security tax in 2020 may defer payment of that tax until 2021 and 2022.

    The second provision allows an employer to receive an immediate credit against those yet-to-be paid payroll taxes via the sum of the emergency medical leave credit, sick leave credit, and new employee retention credit. This will increase the cash available to businesses in the coming months. It appears these credits may also be refundable, meaning you can get cash back from the IRS for certain payroll taxes already paid.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

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    Don’t Make This Common Tax Credit Mistake

    The Internal Revenue Service (IRS) seems to be using new tools to audit interesting situations whereby a Taxpayer achieves a substantial Tax credit.

    A tax credit can be so much more valuable than a tax deduction as a deduction reduces income and then a tax rate is applied.  Therefore, the marginal savings a deduction provides is only a portion of the amount incurred. Whereas a tax credit can offer a benefit for each dollar amount spent.

    That benefit seems to have received extra attention from the IRS as we see a couple of recent tax court decisions which seemed to have discovered situations that were costing the Government money without providing the intended benefits to the economy:

    • In TC Summ. Op. 2016-81 (Berry) the taxpayer claimed $5,800 of self-employment income from the one-time sale of tools and machinery, however, self-employment income is reserved for those in their own recurring business intended to make a profit. By reporting this capital gain income as another type, Berry, then, “conveniently” qualified him for a nice earned income credit. The court moved the income to Line 21 of Form 1040, removed the self-employment tax (and earned income credit) rightly stated that a one-time sale of tools is not considered an activity entered into for profit “with continuity and regularity.”
    • In the Federal Court of Claims case Foxx v. U., 2017 PTC 46 (Fed. Cl. 2017) a

    $2,500 preparer penalty was assessed because the preparer artificially reported additional income in order to claim a larger earned income credit for a client.

    Rightly so, there are limits to what can be accomplished with Tax planning.

    Whether you are a business, individual, or non-profit, we can outline specific steps you should take to minimize taxes, maximize loan eligibility, and enhance the value of your property.

    For more information, contact us at info@czarbeer.com or (212) 397-2970.

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